Published
July 19, 2018
The administration is convening a hearing on July 19 to consider tariffs nobody wants. Specifically, the Commerce Department is investigating whether imports of automobiles and auto parts “threaten to impair the national security.” In the event of an affirmative determination in this investigation, White House officials are reportedly considering applying tariffs of 20% to 25% to approximately $350 billion of imported autos and auto parts.
This is a huge deal. As U.S. Chamber President and CEO Thomas J. Donohue stated on May 24, when the tariff threat was first announced:
The U.S. Chamber strongly opposes the administration’s threat to impose tariffs on auto imports in the name of national security. If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.
As the U.S. Chamber argued in comments submitted ahead of the hearing, the U.S. auto industry is prospering, and the vast majority of industry stakeholders do not support these proposed tariffs. Automakers and auto parts suppliers constitute the largest U.S. manufacturing sector, and it has enjoyed robust growth over recent years in part due to expanded trade opportunities.
In fact, U.S. auto production has doubled over the past decade, and the sector employs nearly 8 million Americans – nearly 50% more American workers than it employed in 2011, according to the American Automotive Policy Council. The industry is also America’s largest exporter of manufactured goods.
These benefits are shared across every state in the Union: As the Alliance of Automobile Manufacturers avows: “Every State is an Auto State.”
International trade – especially but not exclusively within North America – has strengthened the U.S. auto sector. The reduction in production costs made possibly by global supply chains has powered job creation and funded payrolls for firms from family-owned auto parts manufacturers to the global companies that underwrite some of the largest R&D budgets in the United States.
Indeed, access to imports has enhanced innovation in the industry, expanded consumer choice, and allowed firms to remain globally competitive by sourcing specific inputs from abroad. According to Here for America, a coalition representing international automakers, these foreign-headquartered firms have invested more than $75 billion into U.S. operations, with manufacturing plants in 14 states and R&D facilities in 16 states. In doing so, they have generated 1.29 million direct and indirect U.S. jobs with a direct employee payroll of $11.3 billion in 2016.
Simply put, imports of autos and auto parts do not undermine national security. Given the robust health, vast size, and technological sophistication of the U.S. auto industry, even the most generous assumptions with regard to national security would find U.S. industry extremely well situated to meet said demands.
The vast majority of auto imports come from five countries – Mexico, Canada, Japan, Germany, and South Korea – all of which are close partners and allies of the United States. These allies are understandably offended at the notion that their fairly traded goods – and investments in the U.S. economy – could represent a threat to U.S. national security.
Officials’ comments to the press have made clear that the intention of the tariff threat is to create leverage in trade negotiations such as those relating to NAFTA and ongoing discussions with Japan and the EU. This is an inappropriate and unlawful use of this statute. It is the U.S. Chamber’s view that the executive’s Section 232 authorities should not be abused in this way, and doing so only encourages other nations to raise their own trade barriers against U.S. exports in the name of national security.
Imposing a 25% tariff on autos and auto parts would be extremely damaging to the U.S. economy. According to a study by the Peterson Institute for International Economics, this action and the ensuing all-but-certain retaliation by foreign governments would lead to the loss of more than 600,000 American jobs.
Tariffs would also raise the price of a passenger vehicle by several thousand dollars. A Trade Partnership Worldwide study estimates tariffs will add roughly $6,400 to the price of an imported $30,000 vehicle. Because all autos sold in the United States are manufactured with substantial amounts of foreign-made content, significant price hikes for all models would be expected.
As a result, consumers would purchase fewer cars, reducing production as well as jobs with dealers. All of this would contribute to downward pressure across the U.S. economy.
The performance of the U.S. economy over the past year has been impressive. Unemployment is at its lowest level in decades, and output has expanded briskly. These results are more than purely cyclical: Last year’s historic tax and regulatory reforms are paying dividends and are likely to do so for years to come.
For the auto industry, these reforms and other changes have made the United States an increasingly attractive place to invest, hire, and manufacture.
But tariffs on autos and auto parts would put this all at risk. The administration must abandon this dangerously misguided threat now, or American families, workers, and companies will pay the price.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
